Just celebrated your 21st birthday and officially entered the adulting stage? Well, before we congratulate you on crossing into the…
The rise of financial technology (fintech) has put the reach of many financial products in the hands of consumers.
In the past, you had to have a dedicated financial advisor to advise you before you can access such financial products. Today, you can easily access financial products from the comfort of your home by simply downloading a few apps on your phone.
Signing up is also quick and easy. In fact, you can start trading stocks in the matter of hours once you register for an account.
This begets the question: Given the wide access to financial products and tools, do we still need financial planners?
One of the biggest assumption behind the myth that financial planners are no longer important is that financial planning can be done easily with off-the-shelf products. Unfortunately, financial planning isn’t just signing up for a few different brokerage accounts and insurance plans. The true art lies in understanding why you need such product in your financial plans.
Financial planning is a vigorous process that involves evaluating your existing financial situation, your financial end goal, and the gap between the two.
In fact, financial planning is very similar to seeking consultation at the doctor. When you consult the doctor, the doctor uses his/her professional knowledge and experience to evaluate your symptoms to determine what is the effective prescription for you. Although you can get off-the-shelf medication, these are typically ineffective if you didn’t address the root cause.
Similarly, a financial planner is like the doctor for personal finance. The financial planner helps you to determine the effective “prescription” you need to address your financial “root causes”, i.e. the gap between your existing financial situation and your financial end goal. Attempting to do financial planning without an experienced professional is akin to acting as a pseudo doctor and grabbing Panadol from the shelf for every kind of pain that you experience.
While access to financial products have become much more available than in the past, the challenge is that financial products are becoming increasingly complex.
For instance, many modern insurance products combine both protection and savings elements. Some products like Investment Linked Product (ILP) is a combination of protection, savings, and investment in a single product.
Without the right financial planner to guide you, there is a possibility you may end up with multiple financial products that have overlapping features.
As companies try to find their differentiating factor in an increasingly crowded market, they will attempt to create financial products that requires more financial expertise to understand them properly. This is where you will need an experienced financial planner to guide you.
Financial planning isn’t just about choosing the right product that is suited for you. You also need to consider the macroeconomic environment to figure out what is the ideal financial product for your financial goals.
For example, stocks have historically been the go-to investment for many Baby Boomers. But in an environment where interest rates are trending much higher, are stocks still the go-to for everyone? What if you have a much lower risk appetite? Is a high risk investment like stocks still suitable for you?
In addition, there are a lot of geopolitical risks around the world that is creating volatility in financial markets. These geopolitical risks are creating a lot of unwanted ripples in financial markets.
If you don’t have a well-read financial planner to guide you, it means that you have to deal with a higher level of investment risk than you are comfortable with.
Financial planning is a number driven process. However, there are also various aspects of a financial plan that is qualitative, rather than quantitative.
Take retirement for example. Having a comfortable retirement is the goal for many of us. However, the definition of comfortable is so broad that it can mean different things to different people. Depending on how you define comfortable retirement, it will have varying degrees of financial impact on how much you need for retirement.
Not just that, the age at which you choose to retire is also a determining factor. Making the choice to retire 10 years earlier can mean that you need to double the retirement savings that you need.
Also, if you choose to settle for a semi-retirement and prolonging your active years of working, it can translate to a lower sum needed for your retirement.
Each of these factors do not have a perfect answer. They are all determined by your own personal preference. They can each have a profound impact on your financial plan. Yet, unless you are guided by an experienced financial planner, you may miss these factors.
One challenge that we have been hearing from those who are preparing for retirement is the difficulty in finding the right financial planner. The financial planner not only has to be someone who possess the financial planning expertise, have years of experience advising on financial plans, but he/she also needs to be someone that you can trust.
This is one of the reasons why we chose to dedicate ourselves in providing comprehensive and free financial planning for our readers. If you need a financial planner to plan your retirement for you, you can get advice with us here for free.